DOING BUSINESS IN

Presented by, Dileep Bajaj 10DM-045 Kapil Sharma 10HR-016 Anoop N 10IB-016 Arif Ehsan 10IB-020 Anshul Jain 10IT-006 Areeb Ahmad 10IT-009

Conclusion
Starting a business is getting easier as a result of China s entry to WTO. But it has long way to go before reaching international standards Companies should harness the fact that China is not only a lowcost labor market, but is also a strong export and domestic market It is crucial that western companies that are doing business with China should understand that although Chinese consumers flock to international products, they remain firmly grounded in Chinese traditions and beliefs Businesses must understand that their new market customers will have a fundamentally different world view than Westerners, and products have to be placed into that world view.

HALF HOUR BEFORE THE CONCLUSION

General Facts
y Known as Peoples Republic of China y Single Party Government System y Population of 1.3 billion y Beijing is the National Capital

Chinese Mentality
y Patience, Respect and Politeness y Age brings increased respect and status. y Business is often based on Guanxi y Mianzi - the concept of Face

Etiquette & Protocol

y The accepted form of greeting is the handshake, aside from that, people in China prefer

not to be touched, especially older people.

y People are expected to enter the meeting room in hierarchical order. y Use both hands when presenting and receiving business cards. y Arrive to meetings early or on time. Punctuality is very important in Chinese culture. y Refuse a gift several times before accepting it. If a gift is accepted right away, it can be

seen as being greedy.

Starting a Business
East Asia & Pacific 7.8 39.0 27.1 50.6

Indicator Procedures (number) Time (days) Cost (% of income per capita) Paid-in Min. Capital (% of income per capita)

China 14 38 4.5 118.3

India 12 29 56.5 188.8

OECD 5.6 13.8 5.3 15.3

Starting a Business
Regulation is mostly national, but local innovations in implementation can make it more efficient
Starting a business: which regions are easiest, which are hardest

Southeast 12.6 Central 13.6

Southeast Bohai Bay Northeast

33 38 40 40 42 49

Southeast 5.5 Bohai Bay 5.7 Northeast 9.1

Southwest 13.7 Bohai Bay 13.8 13.9

Central

Northwest 11.4 14.8

Northwest

Southwest Northwest

Central

Northeast 14.0

Southwest 16.3

Procedures (number)
Source: Doing Business database.

Time (days)

Cost (% of provincial GDP per capita)

Market Characteristics
A Huge Market
GDP: USD25,000 billion, 4th largest of the world Trade volume

USD2173.8 billion, Ranks 3rd in the world. Export USD12,180 billion, Import USD955.8 billion.
A Comparatively Mature Market
30 years of opening up The global 500 companies settled in China Strong competition

A New Rich People Market

Numbers of rich people with property over USD 1 million : 35,500 Middle class with income between USD 20,000-100,000 : 60-80

million

Regulatory Framework
y Forms of Doing Business in China y Direct Investment Forms
y Equity Joint Venture (EJV) y Contractual Joint Venture (CJV) y Wholly Foreign-Owned Enterprise (WFOE) y Investment Holding Company (CHC) y Joint Stock Company

Foreign Investment Enterprise (FIE)

y Indirect Investment Forms

y Direct purchase and sales y Toll/Contract manufacturing y Licensing y Financing y Representative offices

Foreign Enterprise (FE)

Regulatory Framework
y

China Holding Company (CHC):

Min. asset value US$30m within 2 years, total investment within 5 years Can make strategic RMB investments into subsidiaries.

Wholly Foreign Owned Enterprise (WFOE) or Foreign Invested Commercial Enterprise (FICE):

100% shares owned by foreign parties, offshore or holding companies. Different industries have different registered capital (equity and investment requirements)

Equity Joint Venture (EJV):

E.g. 70% equity, 70% profit.

Cooperative Joint Venture (CJV):

E.g. 50% equity, 80% profit. Contract can include many things, therefore flexible.

Representative Office (RO):

Like an overseas branch, although not allowed to conduct business, only allowed to provide sales, marketing and support services.

Registering Property
Local Reform Can Make a Big Impact
Cost (% of property value) 6.8 6.0 5.3 60 3.9 4.2 4.5 5% 7%

Tim e (Days) 80

59 54 50
40

59
4%

54

36
20 Southeast Time (Days) Source: Doing Business database. Bohai Bay Northeast Central Northw est Southw est

2%

0%

Cost (% of property value)

China Taxation and Incentives

y China is a civil law country. Judges cannot set rules or principles. y Corporate Income Tax rate is 33% (Central + Provincial) y Special Economic Zone incentives, e.g.
y Shanghai 24%, Pudong 15% y Guangzhou 24%, Shenzhen 15%

y It Imposes Import tariffs and VAT on goods imported in general

trade. y It doesn't impose levies on exports with exemption of few types of raw materials and vital resources

Getting Credit
y Firms consistently rate access to credit as among the greatest

barrier s to their operation and growth y Two sets of indicators of how well credit markets function:
y one on credit registries and y the other on legal rights of borrowers and lenders.

Getting Credit data Rank Strength of legal rights index (0-10) Depth of credit information index (06)

Doing Business 2008 .. 4 4

Doing Business 2009 59 6 4

Doing Business 2010 61 6 4

Enforcing Contracts
y China is rated as number 18 by World Bank y One of the best systems in the world for enforcement y Better than the United Kingdom and Japan y Far better than other developing countries like India and Brazil

Enforcing Contracts
Country No. of Procedures Time (days) Cost(% of claim) China Russia USA Brazil Japan UK India 34 37 32 45 30 28 46 406 281 300 616 360 399 1420 11.1 13.4 14.4 16.5 22.7 23.4 39.6

Comparing India and China

Procedure/Cost Filing and service Trial and judgment Enforcement of judgment Attorney cost (% of claim) Court cost (% of claim) Enforcement Cost (% of claim) China 21 days 195 days 190 days 3.6 6.3 1.24 India 20 days 1,095 days 305 days 30.58 8.5 0.5

However
Unfortunate tendency to ignore contract terms in dealing with

foreigners
They assume that the foreigner will not sue Leads to the belief that contract terms can be violated with little risk

Many contracts by foreigners are simply unenforceable in China

Not written in Chinese, not subject to Chinese law and provides for

enforcement outside of China Such contracts are not worth the paper they are written on
Many contracts are too vague for effective action by courts
Chinese courts are good at enforcing simple, clear contracts Important to use contracts in a way that will produce a good result in court.

Chinese court system is a gift, given other obstacles and difficulties in

system, itll be a mistake not to take advantage of it

Enforcing a Contract
Local practices can impact cost and time to businesses
Time (days)
400
363

Cost (% of claim value)

40.0

300

342 312 322 29.9

346

30.0

200

230

23.5

25.1

24.9

20.0

100

11.5

13.8

10.0

0
Southeast Bohai Bay Central Southwest Northwest Northeast

0.0 Time (days) Cost (% of claim value)

Source: Doing Business database.

19

Labor Standards
Foreign companies + investors already there opportunities for expansion New entrants opportunities not previously available Reasons Entry into WTO + Olympic games Risks : Labor laws poor working conditions Chinese laws, politics, culture Investors, consumers : foreign companies take responsibility for working conditions. So, important issue As markets open up more foreign Cos. Easy entry & compete head to head with local Cos. Impact on Chinese economy and workers

Labor Standards
Working conditions in China Key issues: Poor living conditions, pay failing to meet the legal minimum, and long hours Migrants form a great proportion of the manufacturing workforce and face specific problems (discrimination) Way forward: Those engaging with Chinese companies must establish benchmarks on key issues to clarify the level of conditions. But, lowest level acceptable ?
Doing business - Employing workers - China

Working conditions some facts

Employers routinely discriminate on the basis of height, looks, health, home province and age. A typical advertisement for a factory job reads: 1) Age 18 to 35, middle school education, 2) Good health, good quality, 3) Attentive to hygiene, willing to eat bitterness and work hard. 4) Women 1.66 meters or taller. 5) People from Jiangxi and Sichuan need not apply. Factories often have a high turnover. Workers often quit. Companies traditionally could easily fire workers. Many jobs require a lot of overtime. Workers often welcome it as a chance to make more money. Sometimes workers go months without getting paid. Hourly labor costs: 1) China ($0.6); 2) India ($1.0); Czech republic 3) ($5.2); 4) Britain ($19.5); and 5) the United States ($21.6).

Closing the Business

Cancellation application includes :

1. Time and registered number of approval of the office establishment 2. The operational situation after the establishment 3. Reasons and causes of the office cancellation The toughest and most time-consuming part is the tax audit report made by local CPA (Certified Public Accountant

Closing Business in China

DB 2011 Rank 68 DB 2010 Rank 66 Change in Rank -2

Indicator Recovery rate (cents on the dollar) Time (years) Cost (% of estate)

China 36.4 1.7 22

East Asia & Pacific 34.4 2.7 23.2

OECD 69.1 1.7 9.1

China VS India

COUNTRY

Recovery rate (cents on the dollar)

Time (years)

Cost (% of estate)

China India

36.4 16.3

1.7 7.0

22 9

Conclusion
Starting a business is getting easier as a result of China s entry to WTO. But it has long way to go before reaching international standards Companies should harness the fact that China is not only a lowcost labor market, but is also a strong export and domestic market It is crucial that western companies that are doing business with China should understand that although Chinese consumers flock to international products, they remain firmly grounded in Chinese traditions and beliefs Businesses must understand that their new market customers will have a fundamentally different world view than Westerners, and products have to be placed into that world view.

Thank You